Is this any way to rebuild Iraq?

August 15, 2008|Linda J. Bilmes and Joseph E. Stiglitz | Linda J. Bilmes, who teaches public policy at Harvard University's Kennedy School of Government, and Joseph E. Stiglitz, a professor of economics at Columbia University, are coauthors of "The Three Trillion Dollar War: The True Cost of the Iraq Conflict."

Across the Middle East, from Abu Dhabi to Yemen, the dizzying rise in oil prices has fueled a construction and employment boom. Yet in Iraq, one-quarter of the population remains jobless, and Baghdad gets only 11 hours of electricity a day. Four million Iraqis have been displaced from their homes and are urgently in need of resettlement. After five years of war, the country is still desperately in need of rebuilding.

It's not that Iraq has failed to share in the oil windfall. Iraq sits atop the world's third-biggest known oil reserves, and the Iraqi government keeps a mounting pile of petrodollars firmly tucked away in American banks. A new report by the U.S. Government Accountability Office shows that Iraqi oil revenues will reach up to $85 billion this year, resulting in a budget surplus of as much as $50 billion. But despite all the money that is pouring in, Iraq is not taking responsibility for its own reconstruction.

Instead, the U.S. military is footing the reconstruction bill. Over the last two years, while Iraq has earned nearly $100 billion in oil revenues (and spent just $2 billion on capital investments such as roads, water and electricity), U.S. taxpayers have plowed $48 billion into reconstruction activities in Iraq. About half of that has gone to the oil and electricity infrastructures. The U.S. has also helped to renovate 3,000 schools, train 30,000 teachers, distribute 8 million textbooks and rebuild irrigation infrastructure for 400,000 people, as well as fund projects to improve drinking water, bridges, roads, sewage treatment, airports and, of course, oil pipelines and refineries.

True, it was the United States that invaded Iraq, and none of the work we've done there since is adequate compensation for the five years of suffering that the Iraqi people have endured. But at a time when the U.S. economy is weak and our own bridges, roads and airports are in desperate need of repair, there is a real question of whether we can sustain subsidizing Iraq's rebuilding on this scale.

Adding insult to injury is the fact that Iraqis pay a heavily subsidized $1.35 for a gallon of gas at the pumps in their country, while the U.S. military -- the largest single consumer of oil in the world -- is stuck paying world prices of $3.23 (and up to $8 a gallon for certain specialized jet fuels.) Kuwait, by contrast, offers U.S. forces a steep discount on fuel purchases.

U.S. military operations in Iraq gobble up more than 1 million gallons a day to generate power at bases and to fuel trucks, planes, tanks and ships. Even more fuel is required for cargo and logistics: 70% of the gas-guzzling military truck convoys in Iraq are simply carrying petroleum products around the country. Fuel consumption per service person in Iraq is 16 times what it was in World War II.

This means that even as the U.S. is bankrolling Iraq's reconstruction, it is doing so at an exorbitant price -- and is transferring to the Iraqis extra money, which, it turns out, is being squirreled away in unproductive international bank accounts. The oil windfall is yet another example of the ongoing financial fallout of the war, which is costing the U.S. more than $13 billion a month (not counting the future costs of caring for war veterans and replenishing military equipment).

It is time for the newly solvent Iraqi government to begin helping financially (as well as militarily) to get the country back on its feet. And it is time for the U.S. to shift its focus away from bricks-and-mortar projects and concentrate instead on helping the Iraqi government rebuild its capacity to undertake such projects on its own.

In particular, mechanisms need to be devised and implemented to ensure that oil money is fairly distributed across the country, and that it goes to productive investment rather than leaching away to corrupt bureaucrats and avaricious middlemen. Such mechanisms might include dedicating a portion of the oil money to a special reconstruction trust fund with its own guidelines and administration.

Whatever the specifics, it is important to move quickly. Elections are looming in Iraq and the U.S., and the two countries are trying to agree on America's future role. Iraq's future reconstruction program needs to be home grown -- both for the sake of Iraq and for the U.S. taxpayers who need relief from the endless cost of this foolish war.